Monday, April 20, 2015

A niche market by definition is one which captures the interest of a number of people, but does not have mass-appeal. The global EV market is one such market. It is currently a market that needs a lot of financial support, with federal incentives in the US, for each electric vehicle sold at $7,500. For reference, Renault is offering some pretty decent ICE cars for sale in the price range of that subsidy, through its Dacia subsidiary. Some countries such as Norway and China are offering even greater subsidies. For instance, in China one can purchase a Denza and get up to $18,000 in subsidies.

Despite all this help that the EV is getting around the world, in 2014 they only accounted for .4% of all global car sales. What is worse, sales around the world are starting to show signs of stalling out.

Those who want to paint a positive picture of this situation will be tempted to point to the growth achieved year on year. Reality is however that we are looking at a definite slowdown in month on month growth. While I do believe that sales will eventually beat last year's record of 320,000 units, I don't think it will be by much. While for the past three years we have seen dramatic exponential growth in EV sales around the world, evidence is building of a significant slowdown in growth, and may even signal stagnation.

Early indications from Inside EV's suggest that in the first quarter of 2015 around 22,500 EV's were sold in the US. That is a drop of about 30% compared with the fourth quarter of 2014, and it barely matches the sales volume of the first quarter of 2014, or we might learn that sales will be even slightly lower once the final numbers will be in.

In the EU, the fourth quarter of 2014 saw a decline in sales compared to the fourth quarter of 2013.

This might not yet reflect a trend moving forward, but it by no means bodes well, especially if we consider the early signs of stagnation we are seeing from global sales this year. It seems that the EV niche market is reaching its limits, despite all the incentives offered by governments around the world.

Tesla is not the ICE slayer.

I had an interesting chat with an acquaintance a few weeks ago. He mentioned his interest in Tesla (NASDAQ:TSLA) and how he would have liked to buy shares back when it went public in 2010. He did not, which is a shame because as we know, it would have made for a great investment back then. But what I found interesting about his reasoning behind his desire to invest in Tesla was that it was not entirely out of the desire to make money on it. He told me that he would have liked to buy some shares, because he would have liked to be part of it, because he believes in what the company is doing.

He is a tech enthusiast and I believe that it is that aspect of it that attracted him to the Tesla story. Tech enthusiasts love technological progress and revolutionary products. Environmentalists also love to see such progress as Tesla is promising. The thought of a company challenging the supremacy of the gas guzzler producers is very appealing indeed. It gives hope to the believers in human ingenuity as a way of solving our environmental and sustainability issues. It would also be a vindication of the government policies of support for the EV industry for which the environmental movement lobbied for. Tesla's own sales growth forecasts suggest that it is ready to become a major car manufacturer, with 500,000 yearly unit sales by 2020 and perhaps in the million unit yearly sales range by 2025.

But far from becoming a formidable competitor for the internal combustion engine, Tesla is so far not even in position to claim top spot in the global EV market. In fact, it is in fifth spot for this year so far.

I do believe Tesla will claim the top spot in the EV market eventually. In fact, it may even happen this year if the release of the model X will go smoothly. But, at the moment, it did not yet reach that objective and it is facing competition from companies which are best known for their conventional gasoline-powered technology. But even when it will reach the objective of becoming the top EV seller on this planet, it will still have to contend with the dominant technology, which in my opinion is too easily dismissed as yesterday's innovation by tech enthusiasts as well as environmentalists.

Range/Price ratio.

Range was always seen as an issue when evaluating the viability of EV's as an alternative to the ICE. One of the things that got people exited about Tesla, aside from the fact that it is a pure EV company, while the other car manufacturers are seen as simply going through the motions of satisfying various pressures to embrace EV's, has been Tesla's range. The model S has almost 300 miles maximum range per charge that drivers can rely on to get them around. That is as much as many ICE cars get on a tank of gas. Even the model 3, which is supposed to have mass appeal, due to its projected base price of $35,000, will still have a 200 mile range. Furthermore, Tesla is increasing the presence of its fast-charge stations in order to facilitate long-distance mobility for its cars.

It is beyond any doubt that EV range is an undisputed factor in meeting the challenge of taking on ICE domination on the roads, together with an extensive charging network, which needs to provide for fast charging. Tesla is meeting that prerequisite. It is however falling way short on challenging ICE technology on price. The model 3, which is scheduled to hit the market in 2017 will have a base price of $35,000, which on the surface seems reasonable. The average sale price of a car in the US last year was about $31,000. But, the real sale price of that model 3 will average more like $40,000 at the least once options will be included. Furthermore, it will be a compact car, which on average sells for significantly less, in the $20,000 range on average. Car buyers seem to be inclined to pay over $30,000 for SUV's and Trucks, as well as smaller luxury cars, but it remains to be seen whether they will go in large numbers for a $35,000 base price EV compact.

The model 3 battery will cost at least $10,000, assuming a price per kWh of $200, and a range of 200 miles, which suggests it will have a 50 kWh battery. So the battery alone will cost almost as much as many small conventional cars available in the US, EU and Chinese markets. In fact, one can purchase a decent-made Dacia Logan in Europe for about $10,000 these days. I have been ridiculed in the past for bringing up Tesla and Renault's Dacia subsidiary in the same article, but this is the reality of the price difference between ICE's and EV's. The ICE can allow car manufacturers the option of introducing decent cars on the market for sale in the $10,000 range. EV makers, cannot hope to provide a car with a decent 200 mile range for under $30,000 at the moment, and I think they will struggle to do so in the near to medium future as well.

I don't believe that many people are able to grasp the significance of the barrier that this price difference poses to EV's. I am not suggesting by any means that EV makers need to be able to provide a 200 mile range, $10,000 car in order to compete. But, the cheapest EV's with a decent range now cost about two to three times more than the cheapest decent cars available on the main car markets. If the age of the EV is to be ushered in, then the price gap needs to be reduced significantly and I do not foresee that this will be achieved within the next decade, which means that the EV will remain a relatively small niece product, which will continue to rely on significant government support to stay afloat.

As for Tesla's goal of becoming a mainstream carmaker in the next decade, the odds of making it seem very slim. The model 3 may enjoy significantly more success than the model S, or the upcoming model X, but looking at the global EV market and the ICE competition, there is not much to go on as evidence of competitiveness. While I think Tesla is a great company, with a potentially bright future, I also continue to believe that it is currently priced as if the breakthrough to over a million unit sales per year by 2025 has already happened. In other words, there is plenty of room for disappointment, therefore downside for the stock, with little room for upside in case that Tesla does meet its goals on time. The breakthrough into the mainstream car market may eventually happen, but it may take two or more decades for EV's to stand toe to toe with the ICE, with Tesla perhaps leading the way.

Tuesday, April 7, 2015

In Ukraine, they know how to deal with problems like her. They introduced the Ministry of Truth back in December in order to deal with the likes of Valentina Lisitsa. Forgive me for linking to a Russian news outlet for information about this ministry of truth, but the reality is that very few Western media outlets covered it, and even the few who did, such as the Guardian, reported on it, while simultaneously trying to downplay it. Strange thing this is, given that Reporters Without Borders also condemned this repressive move. But I guess in the end, they (the journalists who condemned it) probably found out that their employers were willing to turn them into reporters without jobs if they insisted too much on reporting on this topic. Thus, few articles made it into the Western Mainstream media, and that is probably why most consumers of Western media outlets still believe the often repeated line that Ukraine is fighting for freedom and Western values.

I may have taken issue with this line or argument before, but I will do so no longer, because as the case of Valentina Lisitsa proves, Ukraine is indeed fighting for Western values. No, we do not have ministries of truth yet, but in the past year, it has become clear that we are able to do without, and yet still achieve the same goals, while still maintaining the appearance of a free media.

The mainstream media & governments align on unified message.
No one can say for sure what is the mechanism that keeps the entire Western media establishment in line on this particular topic. To anyone who by some accident came to the conclusion that the dominant story-line is biased to say the least, I think it is obvious by now that there is a force that is making sure that media outlets, be they on the left or right, do publish articles that are predominantly supportive and non-critical of the Ukrainian government, and at the same time very hostile towards Russia, or even the ethnic Russian minority in Ukraine and elsewhere and on occasion even hostile to historical minority rights in the region in general, as is the case with this article from The Economist. This article borders on incitement to hatred, given that it portrays minority group aspirations for the same rights enjoyed elsewhere in similar situations, in order to help prevent their assimilation, as a tool of evil, therefore risks giving nationalist majorities in the region more ammunition. Yet, such reporting on the situation in Ukraine has become a commonly accepted practice.

What is not acceptable is to mention the fact that the main cause of the civil war in Ukraine is in fact the extreme nationalistic nature of the new Kiev elite and their supporters. Valentina Lisitsa brought to the attention of her online audience the fact that the current Ukrainian Prime Minister Yatseniuk, called ethnic Russians in the East sub-human. For this, and other statements off stage, she is now being denied the right to perform on stage in Toronto. The media is catching on to the story, but every mainstream media outlet which reported on this so far, has already picked a side, by calling Valentina's statements about the Ukraine government and its actions "controversial". Mind you, if it were not for Valentina, we would not be talking today about Ukraine's prime minister engaging in hate speech against a minority. Interestingly, no Western media outlet seems to have caught on to the controversial aspect of someone whose government we are called to support in the West, making such hate-filled statements against an ethnic minority. Would Canadian society accept Prime Minister Stephen Harper, calling the French minority in Canada sub-human? Perhaps not! That is why reporting on Ukraine's prime minister making such statements is not convenient, because we are looking to support a government policy that is supportive of the current Ukraine government, to the extent that it apparently cannot be subject to criticism.

Most Western governments were largely silent when the day after Yanukovic was ousted, the new government made it its number one priority, the very next day to repeal minority language rights. In an impressive display of public-private partnership, which in my view proves that both are the same entity, the Western media was silent as well. I myself learned about it because I speak Hungarian and Romanian fluently and Hungary and Romania were in fact the only countries in the EU, which took an attitude against this, because there is a significant ethnic Hungarian and Romanian ethnic minority in Ukraine.

Same thing happened when the Odessa massacre occurred. Despite this being one of the most horrific hate crimes to have been committed on the European continent in the twenty first century, there was very little condemnation on behalf of Western governments, only some statements in regards to regret of the loss of life. And to date, no Western media outlet has picked up on the fact that this remains a horrific hate crime that has been committed recently and to date there is little evidence of the Ukrainian government doing anything to bring those responsible to justice, which should not surprise us, given that the most likely perpetrators were members of the Right-Sector extremist movement, who are also supporters of the current government. Given that Ukraine's Prime Minister apparently considers ethnic Russians to be sub-human, we should not expect justice to be done, but should we not expect our Western media to report on the nature of this government that the Western world is supposed to give unconditional backing to?

Valentina also mentioned the death and suffering caused by the civil war in the East, which apparently is also a highly controversial matter. I am sure it would not be seen as such, if she would have followed the lead of the Western elites and would have placed the blame on Vladimir Putin, instead of pointing out the chauvinistic nature of Ukraine's current government. One would think that at least some relatively marginal voices would be allowed to present the other side of this story, but as Valentina's case shows us, even this much deviation is not tolerated. The Expat Ukrainian-Canadian community must have been very pleasantly surprised to learn that their lobby to punish Valentina Lisitsa for daring to point out inconvenient facts for which the current Kiev government would have probably had her arrested, was greeted favorably. The Western Elite cannot afford to drop the charade and have her put in prison as they would do in Ukraine. But, we do have another effective tool of persecution. We can silence those who we deem to be spreading inconvenient messages by simply labeling them as "controversial", thus apparently justifying their persecution.

I guess there is some element of truth in Western media mainstream reporting. Ukraine is in fact moving towards western ideals, they just don't know how to do it in a more sophisticated and stealthy manner. They are still at the stage of using more blunt tools, such as the ministry or truth.

About Me

Author of book "Sustainable Trade". Book's central subject is a proposal for the elimination of all current bilateral, and multilateral trade agreements, in favor of a new tariff system meant to encourage sustainability. Double honors degree in History and Anthropology, and a B.A in Economics.